While mortgage industry stakeholders and lawmakers await the U.S. Supreme Court's decision on whether or not so-called disparate impact claims are allowed under the Fair Housing Act, the U.S. House of Representatives passed an amendment barring the Justice Department for using funds to bring about such claims.
Representative Scott Garrett (R-New Jersey), Chairman of the House Financial Services Capital Markets and Government Sponsored Enterprises Subcommittee, proposed the amendment to H.R.2578, known as the Fiscal Year 2016 Commerce, Justice, and Science Appropriations Act, sponsored by Representative John Abney Culberson (R-Texas) and introduced on May 27. The act, including Garrett's amendment, passed largely among party lines by a vote of 242 to 173 on Wednesday with only 12 Democrats voting in favor and only 10 Republicans voting against.
The disparate impact issue has become a heated one in the last few years, particularly in housing. The rule allowing disparate impact claims, which are allegations made based on neutral practices that may have a discriminatory effect, was passed by the Obama Administration in February 2013. In early November 2014, U.S. District Judge Richard Leon struck down the disparate impact rule, saying that only claims of direct, intentional discrimination could be made under the Fair Housing Act.
A case involving a disparate impact claim, Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., was argued in the U.S. Supreme Court on January 21, 2015. The case centers on allegations that tax credits were awarded to real estate developers who own property in low-income minority dominated neighborhoods and denied to developers who own property in predominantly white neighborhoods. The Supreme Court is expected to make a ruling in July.
"While everyone agrees that discrimination has no place in the lending practices of any respectable institution, the application of disparate impact theory has had devastating impacts on law-abiding businesses who have diligently maintained fair and consistent lending standards," Garrett said Wednesday after H.R. 2578 passed along with his amendment. "The federal government should be encouraging sound business practices, not punishing those that utilize them. I thank my colleagues for taking a stand for small businesses and reinstating equal protection under the laws as guaranteed in our Constitution by the Fourteenth Amendment."
With the Obama Administration backing the disparate impact rule, the bill is likely to meet opposition from the White House if it passes the Senate.
The purpose of H.R. 2578 is to provide "FY2016 appropriations to: the Department of Commerce; the Department of Justice (DOJ); science agencies, including the National Aeronautics and Space Administration (NASA) and the National Science Foundation (NSF); and several related agencies."
Click here to see a video of Garrett discussing the amendment.